Fraud: Prevention Really Is Better Than Cure

By Caroline Waddicor, Hibis Europe Ltd.

Fraud prevention is very similar to having a good quality health insurance scheme in place. Just as the body may suffer aches and pains, the corporate world can suffer from changes in market or stakeholder demands; fall in shareholder confidence; lack of trained staff; or incidents of fraud, corruption or malpractice.

In order to stay resistant to external and internal threats, corporate bodies need a regular “check up” to ensure that the infrastructure is running as it should. Potential harm will be kept to a minimum if negative symptoms are detected early, a suitable course of treatment is prescribed and the full course of medication is completed.

Addressing risk is by far the most effective and cost saving defence against fraud, corruption and malpractice, and yet time and time again Hibis are called upon to investigate corporate fraud at a very late stage in proceedings. A company may be haemorrhaging as a result of the intensity of the fraud and may already be in need of resuscitation. The life of the business is hanging in the balance, its reputation is ruined and it has suffered irreparable damage due to loss of faith and support from shareholders and stakeholders alike. At this stage, it is frequently too late to bring the company back to life.

The company then has to undertake a full investigation and the common questions include: “How did it happen?” “Who let it happen?” and “Who can we blame?” These questions are normally asked behind closed doors, but what is certain is their public outcome. It is not normally a great career move to be the manager of the department in which the fraud has occurred. For anyone who has been through this process, or has witnessed the investigation, they will know that it is like watching a post mortem examination take place. The fraud investigation team picks apart the corpse of the business and scrutinises it like a crime drama pathologist.

The cost and impact of fraud and corruption is well documented by the press. Commentators estimate that fraud costs between 1 and 5 per cent of turnover, putting it in the category of the greatest unmanaged risk for many organisations. I believe that these statistics are just the tip of the iceberg and that the true cost of fraud is considerably higher.

The main challenge is to get fraud prevention on to the agenda of a corporation and ensure that there is a consistent understanding of the fraud prevention message across the business. Unfortunately, there is still a naïvety within companies that it “will never happen to us”. Time and time again, I see company representatives acting in line with their own needs, objectives and agendas, rather than as part of one, coherent organisation.

Trouble at the Top
One of the major problems is that senior management themselves are in no position to lead the way when it comes to fraud prevention. There are numerous companies where senior management do not have “clean hands”. Because their business practices are inherently fraudulent, they could never introduce a meaningful, sustainable or ethical working practice. As a result, they could not ask employees to be transparent in their business as they do not want anyone to ask too many questions.

I find time and time again that fraud prevention sits within a Loss Prevention (LP) Department or Corporate Security Office (CSO) in a company structure. I have experienced many situations where the LP Manager or CSO are like “puppets”, not free to investigate fraud and malpractice at any and every level within the company organisation. I have personally been told by a CEO of a company I was investigating: “By all means investigate all you want, wherever you want, but remember, any investigation stops at the door to my office.” This is not a healthy way to enforce transparency, trust and ethics within a corporation.

In many organisations it is seen to be the role of corporate security officers, loss prevention managers or internal auditors to investigate fraud. Many of these people are not necessarily trained to investigate corporate fraud. Many are happy to investigate and attempt to eradicate low level matters, like stationery theft, but the more complex issues are left unattended either through naïvety, lack of board support or senior management focus. It should be the responsibility of every person within a company to be fraud-aware, to understand the fraud risks and to be prepared to escalate matters that require further explanation or investigation.

As long as there is money, fraud and corruption will be a fact of business. But it doesn’t have to be something that causes life-threatening damage to your company. Fraud prevention is not a complex subject that requires a degree or endless training, like medicine. Unlike cancer or heart disease, it is not difficult to detect if awareness and reporting lines are in place within an organisation and everyone in that organisation knows what their responsibilities are. The end result of an investigation is often cathartic. Most importantly, however, it can prevent a total breakdown and the end of a company's profitable life.

Caroline Waddicor is a Director of Hibis Europe Ltd. She previously served in the British Police Service for 12 years in the Criminal Investigations Department, Drug Squad and Serious Crime Squad. Caroline works internationally with blue chip companies, including retailers and the airline and leisure industry, at identifying areas of financial opportunity by raising fraud awareness, reducing losses, increasing profitability and introducing robust policies and procedures. As a result of one fraud investigation, Caroline and her team secured the recovery of £2 million pounds for an airline company. Caroline regularly delivers training sessions, workshops and seminars on fraud awareness training and education on fraud prevention disciplines. Contact Details: Tel: +44 (0)207 887 1530 Email: caroline@hibis.com